Economics vs Business

Whenever President-Elect Donald Trump’s misguided claims about trade are questioned, his supporters tend to respond with something like “Trump knows what he’s doing.  He’s a successful businessman!  How many businesses have you owned?”  This question is important in and of itself because it represents a fundamental misunderstanding of what economics is and its relationship to business.

Donald Trump’s business acumen no more makes his an economist than Jeff Gordon’s car-racing skills make him a mechanic (or Bryce Harper’s batting skills make him a physicist).  The two are related, sure, but that’s it.  There are many important differences between economics and business.

Economics is the study of human action in a world of scarce resources.  How do people react?  What institutions are formed?  What are the signalling devices?  That sort of thing.  One of the institutions we study is the firm (or “business.”)  Businesses are part of the economic picture, but not the whole picture.  To that end, one who excels in business is not necessarily (or even likely) a good economist, simply because they are different disciplines.  Whereas the economist must study the effect of a variable change, not just on the seen parties but the unseen parties, the businessman need only see the effect on his own business.  He cares not for the unseen consequences (if he is even aware of them).  Because of these differences, the businessman and economist may reach different conclusions over different policies:

-The economist opposes subsidies, since they tend to impose costs on those who receive no or limited benefit, encourage over-use of resources, and discourage competition.  The businessman who receives subsidies supports them as he is seeing increased demand (and hopefully profits!) for his product.

-The economist encourages competition (both domestically and internationally) among firms, as competition tends to keep the power of firms in check, forces them to innovate, and determine the best way to serve the customer as opposed to serving their own interest.  The businessman tends to despise competition because it keeps his power in check, forces him to innovate, and determine the best way to serve the customer as opposed to serving his own interest.

-The economist tends to oppose excessive regulations, as they tend to squash competition.  The businessman tends to support regulation because it squashes competition.

The list goes on.

The competent businessman is no more uniquely positioned to be competent in economics any more than my competence in economics makes me competent in finance.  Deferring to the judgement of businessmen on economic policy simply because they’ve been successful in business is dangerous.

3 thoughts on “Economics vs Business

  1. Well, of course! Trump supporters are just as bad as “progressives.” Instead of amazing us with their brilliant arguments, they have to make personal attacks and disparaging statements. If they had a good argument, they would make it. They don’t so, like “progressives,” Trump supporters have to vilify their political opponents and blindly follow the new “Dear Leader” without question. We all know that tariffs and bullying by Presidents do not work. The Smoot-Hawley Act was a disaster economically, though it initially benefitted certain businesses by protecting them from competition. And, bullying Presidents of the “progressive” stripe range from Theodore Roosevelt to Franklin Delano Roosevelt to Barack Obama. Tariffs and Presidential bullying won political battles for special interests groups at the expense of American consumers and taxpayers. Those “ideas” should not be tried again. They are known failures.

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  2. What is Trumpism?

    Here is what we know so far:

    1. Tariffs.
    2. Increase the minimum wage.
    3. Improve relations with Russia.
    4. Worsen relations with China and Mexico over international trade.
    5. Limit immigration.
    6. Bullying of political opponents by the American President.

    So we don’t know much about Trumpism just yet, but this sounds a lot like the Theodore Roosevelt and Franklin Delano Roosevelt style of American “progressivism.”

    The “progressive” strain is alive and well in the Republican Party. The issue has never been Democrat v. Republican nor Progressive v Conservative nor Left v Right. The issue has always been the political elite and their political cronies v those who have to pay for their follies. For American consumers and taxpayers, get ready to start paying because even bigger government is on its way.

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